29 july 2011 fx weekly dollar ambiguities amplified complete

8/6/2019 29 July 2011 FX WEEKLY Dollar Ambiguities Amplified COMPLETE

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IMPORTANT NOTICE. Please refer to important disclosures found at the end of this report.Some sections of this report have been written by our strategy teams (shown in blue). Suchreports do not purport to be an exhaustive analysis and may be subject to conflicts ofinterest resulting from their interaction with sales and trading which could affect theobjectivity of this report.www.GlobalMarkets.bnpparibas.com

Foreign Exchange 29 July 2011

FX Weekly: Dollar Ambiguities AmplifiedCurrency Summary 2

AUD: The Future is Rosy 4

Factors Behind The Soaring Birds Set toHold

6

So What if The US Loses Its AAA Status? 8

Little Justification For BoJ intervention 10

Medium Term Recommendations 12

Volatility Cones 13

Correlation 14

Economic Calendar 15

FX Forecast 17

Contacts 18

Dollar implications of ongoing debt ceiling impasse remain highlyambiguous

EURUSD range set to expand; USDJPY, USDCHF and EURCHF toplumb new depths but risk of defensive policy actions rising

Local markets have remained resilient to debt woes across theAtlantic but USD liquidity squeeze is the most important risk.

FX Weekly Strategy: G10 Summary

Political and economic uncertainties impinging on G10 FX markets couldhardly be greater. Both sides of the recent 1.4250-1.4500 effective range onEURUSD are likely to be expanded and USDJPY and USDCHF to plumb yetnew depths. We are confronting the interplay of many conflicting forces:rising risk that August 2 will pass without the debt ceiling having been raisedand how that will play out for risk sentiment in general and dollar fundingpressures specifically; the potential for enduring downward pressure on theUSD (USDJPY especially) from the fresh downward pressure on USTreasury yields following latest US GDP data; renewed threats by Japaneseofficials to intervene; rising risk that Swiss authorities follow Brazil down thepath of capital controls via taxing foreign inflows; the persisting marketuncertainty/scepticism regarding the veracity of the recent EU summitagreement; etc etc. On the latter, we look to Mr. Trichet at the post-ECBmeeting press conference on Thursday to offer enthusiastic endorsement ofthe EU agreement but hopes Mr. Trichet might explicitly commit to expandinguse of the securities market programme (SMP) to buy Euro-peripheral debtahead of the legislative changes necessary for the EFSF to take on this role(and which would likely boost the Euro as a result) may be disappointed.

‘Run of the mill’ data and events cannot be overlooked. The RBA meetingoutcome on Tuesday will be important, and where any explicit re-instatementof a tightening bias will add further support to AUD (or undermine recentgains if not); PMI data from Switzerland on Monday (and CPI on Friday) thatmay add to evidence that the economy is now starting to suffer a vice-likegrip from CHF strength; UK PMI on Monday and Wednesday that mayundermine the (hard to believe) message from the Q2 GDP report and bringthe ‘more QE’ debate back to life to the detriment of GBP; the ECB pressconference and the choice of words on the ECB’s state of alertness in thecontext of the recent poor run of activity data; and of course Friday’s USpayrolls and which we expect will be poor.

Local Markets StrategyLocal markets are facing significant headwinds but, so far, they havemanaged to maintain their composure, as evidenced by the ongoing inflowsinto local markets’ debt funds. That said, widening BOR/OIS spreads in theUS are by far the biggest near-term risk for local markets. In the unlikelyevent of the US moving into a technical default, the impact on local marketswould be significant and negative. The first group of countries to be hit wouldbe those countries holding USTs. This applies mostly to Asia, wherepositioning is quite heavy. The second group would be those countries thathave significant short-term external funding needs. CEE stands out here,particularly if one assumes that access to the CHF becomes more difficult.Turkey fits well here, too given its substantial current account deficit. Thirdly,the expected slowdown in growth would be a drag on commodity producers(Russia and Mexico being at the forefront). Finally, while GCC currencies

would probably remain pegged (for now), balance sheets in the Gulf couldalso be under threat. There would probably be no clear winners but, on arelative basis, we would assume that the likes of Israel, Singapore and theCzech Republic would perform better given their healthy external balances.



Friday, 29 July 2011FX Weekly http://www.GlobalMarkets.bnpparibas.com

Weekly Currency SummaryEurope

EURWith peripheral bond spreads widening, peripheral concerns are re-emerging and weighing on EUR. Also, if the USdebt ceiling lingers into this coming week, we could see a further risk-off move and USD liquidity issues emerging,benefiting USD. Yet, weak US data could help EUR regain momentum against USD. Thus, we see risk of EURUSDextending the past week’s range of 1.4250-1.4500 - quite possibly from both sides.

CHFCHF continues to soar against both the USD and EUR. Recent data are starting to show the impact of the strength ofCHF on the economy, and so, Monday’s PMI will be important. But as debt issues linger, CHF could see further gains,meaning officials could start making louder noises about implementing capital controls.

GBPA surprisingly strong Q2 GDP number seems a bit unconvincing in light of other Q2 data. This week’s PMI numberswill be crucial to providing insight as to how Q3 is shaping up. Barring any downside surprise in PMI, EURGBP is likelyto head lower if EURUSD does as well – and vice versa .

NOK NOK has remained under the cosh on the back of the US debt downgrade/default risks. While it may remain underpressure against EUR and USD as the issue lingers, NOK is likely to gain against SEK in a broader risk-off move.

SEK Despite stronger–than-expected Swedish GDP, SEK remained under pressure as the US debt ceiling issues add toconcerns over USD liquidity and a broader risk-off move. SEK will remain hostage to the US budget debate.

Converging Europe, Russia, Israel and South Africa

PLNPLN eased off 0.6% against EUR this week in relatively-less volatile trading due to intervention by the state-ownedBGK and comments from several NBP representatives. Retail sales growth slowed in June; this is likely to be followedby a decline in the July PMI on Monday. PLN will depend on government agencies, but market sentiment is not verypositive, and the EURPLN is unlikely to go below 3.96.

CZKCZK was, once again, the safe haven currency in the region. The decline in money supply growth in June is likely toreflect negatively on retail sales, which are expected to decline to 1.5% y/y on Thursday. EURCZK will continue totrade between 24.1 – 24.4 as the CNB is likely to remain on hold, contingent on further developments in Europe.

HUFSluggish retail sales growth prevented the NBH from sounding more dovish as external risks and a strong CHF arekeeping the central bank on high alert. The week ahead is likely to present mixed data as the PMI and IP could declineand sour any positive news about the trade balance on Wednesday. We expect EURHUF to trade in 267-271 range.

RONThere were no surprises from the budget performance and the IMF visit. On Wednesday, the NBR is expected toleave rates unchanged and reiterate the expectation that inflation will come off in the coming months. If the centralbank decides to express less concern about global risks, EURRON should continue grinding higher.

RUBThe CBR continued to accumulate reserves in the same proportions and reaffirmed its plan to move towards a freefloat. The July PMI and CPI releases due next week are unlikely to change our view that the central bank will not

tighten in Q3. USDRUB is likely to be capped at 27.4.

TRYThe CBRT scrapped its daily purchases of USDs and cut the RRR on FX liabilities. It also sounded more concernedabout TRY depreciation in the inflation report. The CPI and PPI on Wednesday will be closely watched by the marketto see whether more measures are needed. Given the shift in CBRT rhetoric towards TRY, we could see someunwinding of short TRY positions in intra-regional crosses, but it is too early to herald the triumph of CBRT’s policies.

ILS The BoI continued to revise down its expectations on inflation and the normalisation path of interest rates. The BoIwas seen intervening around 3.38/USD. USDILS, however, remains a sell around 3.45.

ZARThe slightly higher PPI was overshadowed by the up-tick in the unemployment rate and slower credit growth. Thesedevelopments weighed on ZAR. PMI on Monday is likely to decline yet again, but ZAR will remain supported by therecord-high gold prices and the strong interest of foreign investors for long-dated government bonds.

America

USD

As the US political theatrics plays on, concerns over USD liquidity may rise which may work in favour of USD.Nevertheless, the weak Q2 GDP and downward revision of Q1 GDP led to a rally in US Treasuries keeping USDunder pressure. Heading into next week with no resolution on the debt ceiling at hand, USD funding stresses is likelyto increase, in which case the USD will benefit from a flight to quality. NFP on Friday will likely be weak, and anothersurprisingly weak number will lead to a further risk-off move.

CADWeak GDP numbers on Friday led to significant underperformance by CAD. While CAD will be hostage to marketsentiment, the local labour market report on Friday will be key. We do expect a weaker number, which could sendCAD lower still.

EMK America

BRLThe newly announced measures targeting the derivative market are likely to lead to a more pronounced BRLcorrection. The legal framework is setup for the executive power to do more if needed. We like long USD/BRLpositions in the near term.

CLP Despite BCCh’s decision to pause hiking rates, the tightening bias was maintained. CLP is likely to remain on the bid.Copper prices have rebounded recently and are holding firmly. We like short MXN/CLP.

MXN With several uncertainties still surrounding the US economic outlook, a more structural MXN appreciation trend will bepostponed. In fact, we would expect some underperformance of MXN against its Latam peers in the coming weeks.

COPCOP is suffering not only from external uncertainties but also from sizeable USD outflow related to local M&A activity.We would prefer to wait for USD/COP to reach the 1780/90 levels before reassessing short USD/COP positions.

PEN Fundamentals remain favourable for PEN. Foreigners’ exposure to PEN is light, and we are remain short USD/PEN.

VEF The current level of oil prices is enough to give the government some extra-time before announcing another devaluation

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of VEF, which we expect to take place at the beginning of 2013, following presidential elections in December 2012.

ARS As elections approach, we would expect the BCRA to intensify its intervention in the spot market to ensure gradual ARSnominal depreciation. Historically, private sector USD outflow gains momentum ahead of elections. We are neutral ARS.

Asia

YEN With the US debt issues unresolved and USTs falling following weak GDP, JPY strength will likely persist. WhileJapanese officials will continue to make noise about the strength of the yen, chances of intervention are slim as longas the moves in USDJPY remain orderly. The fact remains that JPY appreciation is driven by external factors.

SGDUSDSGD continues to fall to new lows, testing the 1.2000 psychological support. Despite the SGD hitting the upperband of the S$NEER, the market still favours buying SGD on dips. Higher CPI coupled with rebounding IP also provedsupportive for more SGD gains. A break of 1.2000 is in the pipeline, after its current consolidation between 1.2000-1.2050. We maintain our short USDSGD position entered at 1.2410 with a protective stop lowered to 1.2250.

MYRUSDMYR broke below the key 2.9500 support to a low of 2.9335. However, as the risk of precautionary global USDhoarding rose ahead of the US debt vote, we expect some paring of USDMYR shorts to support the pair in the nearterm, where we look to sell USDMYR on rallies to 2.9860 with a stop at 3.0200 as the longer-term picture remainsconstructive for further MYR gains. On Thursday, trade data will be released.

IDR

USDIDR broke below the key 8500 support to a low of 8476 on the back of fresh new foreign bond inflows. The pairregained the 8500 level on Friday as players locked in profits as the market is overly short USDIDR. However, weexpect any pullbacks to be limited as IDR fundamentals remain supportive of more IDR gains. We maintain our shortUSDIDR position entered at 8537 with a stop at 8680. A break of the 8500 critical support opens the way for 8380, lastseen in February 2004. Inflation and export data are due.

THB A current account surplus in June and rising FX reserves support the THB. We maintain our technical short USDTHBposition established at 29.90 with a stop at 30.40. CPI is the key datum next week where a firmer reading could returnthe bid tone on THB rates. Technical resistance is seen at 30.00.

PHP

The BSP left its overnight borrowing rate unchanged at 4.5% but hiked the RRR by another 1% to 21%, in an effort toremove excess liquidity. BSP lowered its 2012 inflation forecast to 4.7% from 5.1% and said that inflation will peak inQ4 2011, keeping Phili assets and PHP on a strong footing. In addition, a credible fiscal performance ytd shouldmaintain the bullishness on PHP. Data in the coming week include the June budget statement, July CPI and July FXreserves. We like selling USDPHP on rallies to 42.50 with a stop at 43.20.

HKDExport growth slowed in June on weak demand from the US, China and Germany even though shipments to India

jumped. USDHKD spot continues to trade in a tight range with moves inversely correlated with equity performance.We saw some 1Y forwards selling and expect more downside movement. However, the front end is firm as longpositions provide some positive carry. Retail sales and PMI will be released in the coming week.

CNY

USDCNY fix was below 6.4500 most of this week. Both DF and NDF moved higher after the HKMA eased rules on netopen positions, suggesting that there is more room for cheap CNH funding via sell/buy CNH FX swap for CNH bondinvestment. We like short PV in the medium term. With net inward payments to the Mainland from Hong Kongincreasing - the increase in CNH deposit was only RMB 4.8bn in June vs. the average monthly increase of RMB 46bn

in January-May – we need to monitor the liquidity of CNH. PMI manufacturing is due on 1 August.

TWD

Growth in IP slowed last month on weak external demand. However, Taiwanese fundamentals remain solid as Juneleading index continued climbing on a monthly basis. USDTWD has been stuck in a range of 28.50 to 29.00. The pairmet strong resistance at 29.00 and the 100-day MA at 28.93. We maintain a technical short position established at28.70 with a stop at 29.20. Reportedly, the CBC is still paying 1M to 3M FX swaps, while lifers rolled over their FXswap positions in 5M and 6M. Data due include PMI manufacturing, CPI and FX reserves.

KRW

GDP growth eased in the second quarter, but the current account surplus widened to an eight-month high. The KRWis expected to stay supported with the strong surplus and capital inflows. We maintain our short USDKRW entered at1087 with a trailing stop at 1070. Potential intervention could slow won appreciation as the BoK reportedly acted tosupport the USD at the 1050 level. We saw small liability swap flows early last week against forward selling fromheavy industry names. Data scheduled this week are CPI, PMI manufacturing, external trade and FX reserves.

INR

The RBI’s unexpected 50bp rate hike left the door open to more hikes boosting INR to rally past USD 44.00 briefly.Another important development was the RBI’s new direction to encourage INR for trade settlements. This will enhancethe liquidity of both onshore and offshore markets. With offshore INR liquidity improving, this could benefit the INR.Data due in the week ahead include trade data and weekly WPI. With the debt situation in the US uncertain, the flightto Asian assets could keep the USD heavy. Resistance is seen at 44.50 with support below 44.00 at 43.50.

VND It remains quiet on the VND front as focus turned to more liquidity and tradable markets in Asia with players betting ona USD collapse as US debt talks failed to progress. A rise in July CPI to another high at 22.1% y/y, although the m/mgrowth was stable, showed that the economy is not out of the woods. We stay neutral on this currency for now.

Oceania

AUDStronger-than-expected CPI helped lift AUD above 1.10. The focus this week will be on the RBA meeting; while themarket is not pricing in a hike this week, we could see the RBA leaning on the hawkish side. However, a broader risk-off move given the global backdrop could cap AUD gains even with a hawkish RBA.

NZDThe RBNZ signalled its intentions to remove the emergency rate cut from March 2011 and keep rates on holdthereafter. The market has not fully priced in the removal of the emergency cuts by the next meeting. As such, ahawkish RBA could result in a higher AUDNZD.

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Steven Saywell Friday, 29 July 2011FX Weekly http://www.GlobalMarkets.bnpparibas.com

AUD: The Future is Rosy

The robustness of AUD despite thediminishing of its yield advantage suggests thereal drivers lie elsewhere.

The key drivers appear to be robustsovereign demand, its role as a proxy for AsianFX appreciation and the terms of tradeimprovement.

STRATEGY: We believe that AUDUSD willappreciate further towards 1.15.

The outperformance of AUDUSD relative toexpected interest rate differentials is not likely to bethe catalyst for a sustained pullback on AUD. Therehas been much market discussion on the breakdownof this traditional relationship (Chart 1). We suggestthat interest rate markets are not pricing insufficient tightening from the RBA. Oureconomists are calling for a 25bp hike in Q4assuming that global downside risks do notcrystallise. Further tightening is also likely in 2012 ifthe same conditions hold in contrast to almost flatmarket expectations. This week’s upside surprise toQ2’s CPI revealed an acceleration in underlyinginflation to 2.7% y/y and it is likely to nudge higherover the balance of the year. In contrast, recentweak data in the US suggest little potential for anear-term increase in market expectations for Fedtightening. Accordingly, we believe there areprospects for the benchmark 2-year yield spread tomove in favour of AUD over coming weeks. Still, therobustness of AUD, despite the diminishing of itsyield advantage, suggests the real drivers lieelsewhere.

The strong trend higher in Australia’s terms oftrade appears consistent with the appreciation ofAUD (Chart 2). The commodities boom continues tosupport the rise in prices of exports relative toimports while ongoing strong demand fromAustralia’s major trading partners, including China,should see this trend persist. This data series is onlyreleased quarterly but more recent CRB data isconsistent with the terms of trade remaining atelevated levels. It is interesting to note that themoderation in China’s growth indicators since thesecond half of 2010, especially the PMI, has notproduced a pullback in AUD. Such a divergencesuggests that the improvement in Australia’s termsof trade is more broadly based that merely being areflection of Chinese growth prospects.

AUD may have become an FX proxy for generalAsian currency appreciation . AUDUSD appearsvery closely linked to USDCNY 12-months NDFsand does not appear to have outpaced CNYappreciation (Chart 3). This link seems reasonablegiven Australia’s geographic location and itsexposure to emerging Asian economies. Specifically,as official intervention remains a significant risk from

Chart 1: AU-US 2y Yield Spread

J u l 0 8N o v 0 9M a r J u l N o v 1 0M a r J u l N o v 1 1M a r J u l

0 . 6 0

0 . 6 5

0 . 7 0

0 . 7 5

0 . 8 0

0 . 8 5

0 . 9 0

0 . 9 5

1 . 0 0

1 . 0 5

1 . 1 0

0 .5

1 .0

1 .5

2 .0

2 .5

3 .0

3 .5

4 .0

4 .5

5 .0

5 .5

A U - U S 2 y S p r e a d

A U D U S D ( R H S )

Source: Reuters EcoWin Pro

Chart 2: AUD TWI vs. Terms of Trade

0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 14 5

5 0

5 5

6 0

6 5

7 0

7 5

8 0

6 0

7 0

8 0

9 0

1 0 0

1 1 0

1 2 0

1 3 0

A U D T W I ( R H S )

T e r m s o f tr a d e , In d e x , 2 0 0 8 - 2 0 0 9 = 1 0 0

Source: Reuters EcoWin Pro

Chart 3: AUDUSD vs. CNY 12m NDFS

J u l0 8N o v

0 9M a r J u l N o v

1 0M a r J u l N o v

1 1M a r J u l

6 .2

6 .3

6 .4

6 .5

6 .6

6 .7

6 .8

6 .9

7 .0

7 .1

7 .2

7 .3

7 .40 . 5 5

0 . 6 0

0 . 6 5

0 . 7 0

0 . 7 5

0 . 8 0

0 . 8 5

0 . 9 0

0 . 9 5

1 . 0 0

1 . 0 5

1 . 1 0

1 . 1 5

A U D U S D

U S D C N Y 1 2 m N D F ( R H S in v e rt e d )

Source: BNP Paribas

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Steven Saywell Friday, 29 July 2011FX Weekly http://www.GlobalMarkets.bnpparibas.com

many of the region’s central banks there has beenvery little verbal opposition from Australian officials.The RBA has been capitalising on recent AUDstrength to build official reserve assets but the risehas been moderate in recent months standing at

AUD 41.1bn as at the end of June.

In our opinion, the strongest rationale behind AUDappreciation remains demand form sovereign fundsand central banks. In a world where both EUR andUSD have faced debt market issues, alternativessuch as AUD, CAD, GBP, JPY and SEK continueto benefit. Data on specific AUD demand is scarce.The official IMF COFER data for Q1 (IMF COFERQ1 Update – EUR Conundrum) reveals the largestrise by category among countries that do reportreserve breakdown by currency was among the non-specific “other” group of currencies at 12.6% q/q.

This category relates to non-USD, EUR, JPY, CHFand GBP G10 holdings. We assume this grouppertains mainly to AUD and CAD but a breakdown isunavailable and also excludes holdings from thelargest foreign exchange reserve holder China.Separately, monthly data from the RBA report asharp increase in total foreign ownership ofCommonwealth Securities (Chart 4). The total hassurged from AUD 57.8bn at the end of 2008 toAUD 191.3bn as at June 2011. This data seriesprobably underreports total foreign held securities aspurchases through local subsidiaries in Australia arelikely excluded from the foreign total. Accordingly,the trend of rising holdings of AUD assets by foreignreserve managers appears clear.

In summary, we do not believe the divergencebetween AUDUSD and relative near-term interestrate expectations will be a catalyst for a sustainedAUD pullback. Indeed, the robustness of AUDdespite the pullback in its yield advantagesuggests the real drivers lie elsewhere. Incontrast, the ongoing rise in Australia’s terms oftrade supports the currency’s appreciation while thelikely role of AUD as a proxy for Asian appreciationpresents strong prospects for further appreciation.Finally, reserve manager demand is rising andshould continue to remain strong. Strategically, webelieve that AUDUSD will continue to appreciatebeyond new multi-decade highs above 1.10 towards1.15.

Chart 4: Foreign Ownership of CommonwealthAUS Government Securities. (AUD mn)

40000

60000

80000

100000

120000

140000

160000

180000

200000

Jun-94 Jun-98 Jun-02 Jun-06 Jun-10

Source: RBA

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Mary Nicola Friday, 29 July 2011FX Weekly http://www.GlobalMarkets.bnpparibas.com

Factors Behind The Soaring Bird Set to Hold

Increasing demand from China for dairyproducts to keep NZD on strong footing

RBNZ to remove emergency rate cuts fromMarch 2011; mispricing between rate hike fromRBA vs. RBNZ to work in favour of AUD

STRATEGY: Buy AUDNZD on dips, targeting1.30

NZDUSD continues to soar to new highs despitethe recent rise in volatility in G10 FX markets,conjuring up questions as to whether such movesare overextended and whether this move is in factwarranted.

First and foremost, New Zealand is experiencing asignificant positive terms-of-trade shock as tradewith China and emerging Asia has soared in recentyears along with food prices – including those fordairy products, which account for about 22% ofexports. Second, reconstruction is underway as NewZealand rebuilds after the Christchurch earthquakes.Third, NZD is gaining ground in this low-rateenvironment not only because of absolute ratedifferentials but also because markets are pricing infurther rate hikes from the RBNZ as the economyrebounds.

As a soft commodity exporter, New Zealand isbenefiting from the surge in food prices. Earlier thisyear, the IMF noted that the world would have to getused to higher food prices given the rise in demandfor food commensurate with global income growthand other structural factors. The IMF argues that thisphenomenon is not going away anytime soon, asentiment with which we broadly agree.

But more specific to NZD is the surge in exports toChina and emerging Asia. Following the 2008 milkscandals in China when some 300,000 children fell illfrom drinking melamine-contaminated milk, ageneral distrust of Chinese-produced dairy productsled to an increase in imports. New Zealand benefitedgreatly from this, and it is now China’s secondlargest trading partner (after Australia). The demandfor dairy products has risen not only for this reasonbut also because of a rising middle class in Chinaand emerging Asia. Demand for dairy produce inChina among high-income households is twice asstrong as among low-income ones. We also find thatthe price elasticity of export demand for dairyproducts is very low; this means that higher dairyprices arising from both the ongoing appreciation of

the NZD and the rising trend in (NZD-constant)prices is not impacting negatively on overall demand.As such, the positive terms-of-trade shock seen inNew Zealand will likely persist.

The devastating earthquakes in Christchurch, NewZealand’s second largest city, in September 2010and February 2011 require enormous reconstruction,with an estimated building cost of USD 20bn.

Rebuilding efforts now look to be starting to have apositive impact on the economy via a surge inconstruction investment, after Q1 (earthquakeaffected) GDP data surprised significantly to theupside with a gain of 0.8%.

NZD is also benefiting in this low-rate environmentas one of the higher yielding currencies in the G10space. Even at the post-earthquake emergency levelof 2.5%, money market rates remain favourable withrespect to most other G10 currencies. And, weshould soon see RBNZ reverse its emergency ratecut. While the RBNZ left rates unchanged in July,

they were optimistic on the economic recovery andnoted that they see little need to maintain theemergency rate setting from back in March. Thisstatement was followed by concerns over the

Chart 1: NZDUSD vs. NZ Terms of Trade

Source: BNP Paribas

Chart 2: AUDNZD v. Relative Rate Expectations

Source: BNP Paribas

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strength of NZD and that if its strength persists, then“it is likely to reduce the need for further OCRincreases in the short term”. The key phrase here is“further OCR increases”, which is interpreted tomean they would soon get rid of the emergency

50bp cut from back in March but with limitedtightening thereafter assuming NZD remains sostrong. After the meeting, a Reuters poll showed thatthe consensus now expects the RBNZ to raise ratesby 50bp at the next meeting on 15 September. Afterthat, consensus is looking for rates to rise to 3.25%by March 2012 and then 3.5% by June 2012. Themarket is now pricing in about 111bp of rate risesover the next 12 months, a view with which we are inbroad agreement.

While the market is fully pricing in the removal of theRBNZ emergency cut and looking for more ratehikes from the RBNZ further down the road, we thinkthe market is significantly under-pricing tighteningrisks from the RBA. Currently, the market is looking

for about 19bp in cuts over the next 12 months, but a15% chance of a rate hike at the upcoming meeting.In our view, the uncomfortably high Q2 CPI outcomewill, at the very least, see the RBA shifting itsrhetoric at the upcoming (2 August) meeting. Weexpect a hike from the RBA to come in Q4. Thus, inthe short term, this disconnect in rate pricing willwork in favour of AUD v. NZD. AUDNZD could rallyback up to 1.30 on a hawkish RBA.

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Ray Attrill Friday, 29 July 2011FX Weekly http://www.GlobalMarkets.bnpparibas.com

So What if the US Loses its AAA Status?

Under a scenario of a US ratings downgradewith no default, USD may not come to any(sustained) great harm

Assuming default is avoided and the debtceiling raised, focus may quickly turn to thescale of 2012 fiscal drag

Fiscal headwinds keeping growth subduedin 2012 plays to extension of USD downside riskthrough 2011.

US debt downgrade shouldn’t harm USDDespite the absence as yet of any agreement on USdeficit reduction, we continue to assume that thedefault scenario will be avoided. Even if this is so,the chances of Standard & Poor’s electing to stripthe US sovereign of its AAA status remains highsince the agency (in contrast to Fitch and Moody’s)has made plain that in the absence of a credible 10-yr deficit reduction agreement totalling somethingclose to USD 4trn, a downgrade is likely. As theclock ticks down towards an August “drop-dead”date (albeit perhaps a bit beyond 2 August) so the

chances of a deal that gets the debt ceiling liftedwithout satisfying S&P in terms of scale andsubstance, increases. Under “downgrade notdefault” and especially if a downgrade is confined toa single agency (S&P), it is not clear that major flowsout of US Treasuries will necessarily result. Whilethe knee-jerk reaction will almost certainly be USDnegative, there will likely need to be evidence oflarge-scale physical selling of Treasuries in favour ofnon-dollar denominated AAA securities for there tobe a sustained negative dollar impact. Our analysisand investigations suggests that across the broadspectrum of bond portfolio managers (money market

funds, bond mutual funds, money managers,insurance companies, official institutions and centralbanks), few if any will be compelled to sell (forexample many are mandated only to hold “Tier 1”assets not necessarily “AAA” assets – Tier 1encompassing paper rated as much as 6-notchesbelow AAA). Though we have seen evidence ofmoney market funds starting to hoard liquidity as aprecaution against redemption demand, we believethis provisioning is linked more to insurance againsta debt default rather than downgrade scenario.

In the case of the larger foreign holders of

Treasuries (China, Japan, OPEC nations, otherAsian monetary authorities), any large-scale sell-down of Treasury debt may be viewed by theseholders as a case of “cutting off your nose to spite

your face” – prone to weakening the value of existingasset holdings both directly, and indirectly viaweaker USD valuations. At a time when investors – central banks and otherwise – remain hesitant to addto euro-denominated debt holdings until greaterclarity is provided on the substance of the new EUagreement on Greek funding and expanded EFSFremit, it is not clear funds will flow from USTreasuries to AAA-rated eurozone debt on anysignificant scale. Meanwhile, UK (AAA) debt isalready under the ratings spotlight while non-US andEuropean AAA-rated sovereign credit markets

Chart 1: Japan Downgrade implications for FXand JGBs

S ourc e : Re u t e r s EcoWi n

Source: BNP Paribas. Neither JGB yields not JPY came to any sustained harm after Japan was first stripped on its AAA rating by one agency (Moody’s) in late 1998. Limited foreign ownership of JGBs makes comparisons with the US Treasury market and the dollar specious, but the observation is nevertheless worth noting.

Chart 2: US Projected Deficit Reduction under“Gang of 6” Proposals

-900

-800

-700

-600

-500

-400

-300

-200

-100

0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total Projected Deficit Reduction

Total Ex Tax Reform

Source: BNP Paribas: Deficit reduction/implied fiscal tightening in 2012 shown here are in addition to whatever tightening is slated to occur anyway. Much depends on the extent to which tax breaks and benefit extensions currently in place are rolled forward into 29012, but we currently assume that we will get an implied fiscal tightening of some 1.8% of GDP independent of what falls out of the current deficit/debt ceiling process.

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Ray Attrill Friday, 29 July 2011FX Weekly http://www.GlobalMarkets.bnpparibas.com

(Australia, Canada, Sweden and Norway) are simplytoo small to accommodate inflows on the scale thatwould make an appreciable difference to total USTreasury holdings.

Comparisons with Japan’s 1998 experience of losingtheir AAA status, initially from just from one ratingsagency (Moody’s) are not that relevant give thelimited foreign ownership of the JGB market, thoughit is worth noting that neither JGB yields nor the JPYcame to any sustained harm (see Chart 1).

Also important to keep in mind are thecircumstances under which S&P issues adowngrade. This will be because of the absence ofan agreement to medium term deficit reduction on asufficient scale to convince the agency that US debtis being put on a sustainable footing. However as

far as 2012 is concerned, it is highly probable thatthis will be the first time for many years that fiscalpolicy is acting as a headwind rather than tailwind onthe economy. As such, any growth acceleration in2012 versus what we expect will be something close

to 2% in 2011 may be modest at best andconceivably non-existent.

As and when we get through the current debt ceilingdebacle and assuming default is avoided but not anS&P downgrade, then markets are likely to quicklyrefocus on the implications of fiscal policy for the2012 growth outlook. To the extent this will play tothe view that the Fed will be “easier for longer”, theneven in the absence of moves to price in QE3, themore likely it is that dollar remains on a weakeningtrend though the remainder of 2011.

9




Little Justification For BoJ Intervention

Strength of JPY driven more by concernsover US debt-ceiling deadlock than internalfactors

Odds of BoJ intervention are low unlessUSDJPY moves become disorderly

Focus on the US debt ceiling has kept safe-havencurrencies like the JPY and CHF very well bidagainst the USD. USDCHF has reached an all-timelow while USDJPY is well below 80, the once

perceived line in the sand for Japanese officials. AsUSDJPY continues to trade below 80.00, speculationof intervention from the BoJ is rising. But in our view,the likelihood of intervention is very slim, barring anydisorderly moves in USDJPY. While the motive forintervention is there for Japan as it continues torecover from the devastating earthquakes earlier thisyear, the reasoning is rather weak.

For one, the intervention in March was the result ofinternal factors, chiefly the Japan earthquake. WithJPY flows flooding back home, JPY made significantgains against the majors: USDJPY fell from a high of

79.75 to 76.25 while EURJPY dropped to 106.61from 111.27 on 17 March. The G7 countries acted insolidarity via a coordinated intervention to mitigatethe strength of the currency and help allay one ofJapan’s key concerns. This time around, JPYstrength has been mostly against the USD on theback of the stalemate on the US debt ceiling. Withthe US deep in its fiscal mess and the eurozonemending its own fiscal issues, a coordinatedintervention would be a hard sell. In addition, FXintervention would likely prove to be unsuccessful asit would have to be accompanied by complementaryBoJ policy (further monetary easing). The last

intervention had a very limited impact on the JPYbecause while the BoJ initially expanded its balancesheet (to new record highs), it shrank it back downonce the new fiscal year began in April. Thisundermined efforts to weaken the JPY. With the BoJshowing little inclination to embark on fresh balance-sheet expansion (let alone JGB monetisation),unilateral intervention could quickly turn into anexpensive policy mistake.

Second, while the JPY may look expensive incomparison to USD in nominal terms, the picture isquite different in real terms and against an average

of its trading partners. The JPY remains“undervalued” versus its trading partners on a REERbasis, being well below its long term average. Sincethe start of 2011, the currencies of some of Japan’s

key trading partners including EUR, KRW, and SGDhave outperformed the JPY. Although the MYR hasunderperformed the JPY in recent months, it hassince made a comeback. The USD has been theonly big and consistent underperformer against JPY(China, Japan’s largest trading partner, has alsounderperformed but to a much lesser extent giventhe 5% drop in USDCNY in the past year.) Ingeneral, Japan maintains its competitiveness againstits key trading partners on a REER basis and on aNEER basis against both Europe and some of itskey Asian export competitors. The key positive spinon the strength of the currency against the USD isthat raw materials and other commodities priced inUSD have become markedly cheaper at a time whenJapan begins its reconstruction efforts, somethingthat Japanese officials have acknowledged asbeneficial.

Based on the JPY REER, the BoJ should not be tooalarmed by the moves in USDJPY unless it begins tofreefall. USDJPY will remain hostage to the progress(or lack thereof) on the US debt negotiation. Our

Chart 1: JPY REER v. JPY REER LT Avg.

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

70

80

90

10 0

11 0

12 0

13 0

14 0

15 0

16 0

JPY REER Long Term Avg

JPY REER

Source: BNP Paribas

Chart 2: USDJPY v. 10yr Yield Differential

No v09

Jan10

M ar May Jul Sep Nov Jan11

Mar May Jul1.4

1.51.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

2.4

2.5

2.6

77.5

80.0

82.5

85.0

87.5

90.0

92.5

95.0

USD/JPY

10y UST v. JGB (RHS)

Source: BNP Paribas

10




base-case scenario is that the US comes to a two-stage deal at the 11th hour which may not pleaseS&P resulting in a downgrade. The knee-jerkreaction will likely be a sell-off in the back end of theUST curve but potentially a rally in the front end of

the curve as the markets start pricing in further US

economic weakness from the implied 2012 fiscaldrag. Thus, the net impact on USDJPY may belimited given USDJPY is more highly correlated withyield spreads at the front end of the respectivecurves than at the longer end.

11




Medium Term FX RecommendationsShort USDSEK Via Options Working

22 July 2011 Buy 3m 6.28 put, Sell 6.78 call for 1.00%USD net

USDSEK

6.326

Given choppy price action and still bid USDSEK riskreversals, we opted to play for a lower USDSEK viewusing option; selling a 6.78 call and buying a 6.28 putOct 24 NY cut for a 1% USD entry cost. The positionnow markets to market higher at 1.232% USD. We likeUSDSEK lower multi-month though acknowledge nearterm risks as US money markets show signs of stress towhich the Swedish Banking system is susceptible.Longer term, SEK has strong FX fundamentals and with

a stronger Q2 GDP, ultimately rate tighteningexpectations could provide an additional support.

Short EURCAD Stopped Out.

15 July 2011 Sell on a break of 1.3440, target 1.3000,stop-loss at 1.3708.

EURCAD

1.3763

Our recommendation to sell EURCAD was activated onJuly 18th. However, the EU Summit and the headlinesleading to it were a sea change triggering a EURCAD

rally with the cross following EURUSD higher. At thesame time, while the BoC MPS was rather hawkish, thesharp fall in Canada CPI has crushed this view. Thetrade was stopped out on July 25 th though the CADcould continue to remain under independent pressuregiven its still large dependence on the US economy,especially after much weaker US Q1, Q2 GDP figures.

12




Implied Option Volatility Analysis

EURUSD Implied Volatility Curve and 1y highs

& lows

8

10

11

13

14

16

18

1w 1m 2m 3m 6m 9m 12m

Current Imp. Vol. High/Low Last Week Imp. Vol.

USDCHF Implied Volatility Curve and 1y highs& lows

7

8

9

1112

13

14

15

17

1w 1m 2m 3m 6m 9m 12m


AUDUSD Implied Volatility Curve and 1y highs& lows

8

11

13

16

18

21

1w 1m 2m 3m 6m 9m 12m


USDJPY Implied Volatility Curve and 1y highs& lows

679

1011131415161819202223

1w 1m 2m 3m 6m 9m 12m


GBPUSD Implied Volatility Curve and 1y highs& lows

6

8

9

11

12

14

1w 1m 2m 3m 6m 9m 12m


USDCAD Implied Volatility Curve and 1y highs& lows

6

8

9

11

13

15

1w 1m 2m 3m 6m 9m 12m


*BNP Paribas FX Strategy: The above charts show the current volatility curves (1-week through to 1-year) for the major currency pairs in relation to the 1-year highs and lows for each of the tenor.

13




Majors Emerging MarketsEURUSD GBPUSD USDCHF USDJPY AUDUSD USDCAD USDZAR USDTRY USDHUF USDPLN

O

I L

0.52

0.09

0.43

0.48

0.09

0.28

0.02

‐0.39

‐0.12

0.42

‐0.190.05

0.64

0.04

0.51

‐0.08

‐0.74‐0.51

0.05

‐0.54‐0.34

0.23

‐0.64‐0.35

0.04

‐0.47‐0.43

0.01

‐0.56‐0.45

C O P P E R 0.33

‐0.04

0.23

0.4

‐0.03

0.24

0.14

‐0.38

0.01

0.32

‐0.31

0.13

0.45

0.11

0.4

‐0.01

‐0.35‐0.32

0.07

‐0.41

‐0.19

0.01

‐0.36

‐0.09

‐0.08

‐0.37

‐0.23

0.03

‐0.34‐0.27

C R B

0.87

0.68

0.8

0.81

0.49

0.79

‐0.63

‐0.84

‐0.65

‐0.06

‐0.77

‐0.35

0.84

0.34

0.59

‐0.29

‐0.68

‐0.6

‐0.23

‐0.66

‐0.57

‐0.11

‐0.73

‐0.38

‐0.55

‐0.78‐0.75

‐0.57

‐0.85

‐0.72

C o m m o

d i t i e s

G O L D

0.5

‐0.37

0.08

0.58

‐0.2

0.13

0.04

‐0.58

‐0.33

0.18

‐0.58

‐0.05

0.62

‐0.11

0.29

0.06

‐0.49

‐0.26

0.04

‐0.48

‐0.1

0.27

‐0.54

‐0.06

0.24

‐0.47

‐0.06

0.27

‐0.57

‐0.05

S P 5 0 0 0.64

0.18

0.59

0.56

0.16

0.49

0.34

‐0.5

0.11

0.69

‐0.09

0.23

0.88

0.32

0.56

‐0.45

‐0.88‐0.81

‐0.33

‐0.77

‐0.6

‐0.37

‐0.77

‐0.37

‐0.27

‐0.68‐0.64

‐0.34

‐0.76

‐0.66

F T S E 1 0 0 0.52

0.05

0.47

0.38

0.03

0.37

0.27

‐0.42

0.01

0.52

‐0.08

0.15

0.7

0.2

0.55

‐0.2

‐0.7‐0.64

‐0.29

‐0.61

‐0.53

‐0.32

‐0.69

‐0.32

‐0.26

‐0.61‐0.6

‐0.29

‐0.62‐0.57

N I K K E I

2 2 5

0.23

‐0.14

0.07

0.35

‐0.07‐0.01

0.22

‐0.14

0.05

0.36

‐0.17

0.17

0.34

‐0.010.07

0.05

‐0.33

‐0.13

0.13

‐0.3

‐0.18

0.03

‐0.26

0.02

0.1

‐0.22‐0.16

0.11

‐0.24‐0.17

E q u

i t i e s

E U R O

N E X T 1 0 0 0.52

0.02

0.46

0.43

0.12

0.42

0.32

‐0.3

0.12

0.56

‐0.06

0.15

0.71

0.2

0.51

‐0.19

‐0.74‐0.66

‐0.2

‐0.66

‐0.55

‐0.28

‐0.64

‐0.28

‐0.29

‐0.64‐0.62

‐0.29

‐0.62‐0.57

U S 1 0 Y

Y i e l d s

0.56

‐0.17

0.51

0.5

‐0.15

0.24

0.57

‐0.2

0.12

0.68

0.25 0.25

0.71

‐0.16

0.47

‐0.05

‐0.75

‐0.56

0.19

‐0.59

‐0.4

0.07

‐0.64

‐0.35

0.09

‐0.63‐0.52

0.03

‐0.67‐0.54

E U 1 0 Y

Y i e l d s

0.6

0.06

0.58

0.47

0.01

0.440.45

‐0.2

0.06

0.54

0.120.17

0.56

‐0.09

0.33

0.04

‐0.58‐0.51

0.16

‐0.54‐0.5

0.01

‐0.5

‐0.25

‐0.05

‐0.67‐0.66

‐0.04

‐0.67‐0.66

J P 1 0 Y

Y i e l d s

0.32

‐0.33

0.32

0.18

‐0.28

0.160.29

‐0.15

0.04

0.4

‐0.13

0.07

0.3

‐0.22

0.07

0.13

‐0.32‐0.23

0.33

‐0.4

‐0.23

0.37

‐0.36

‐0.08

0.26

‐0.34 ‐0.34

0.19

‐0.37 ‐0.37

U S 3 m

L I B O R

0.36

‐0.25

0.08

0.31

‐0.17

0.04

0.18

‐0.29‐0.2

0.25

‐0.33‐0.33

0.29

‐0.21

0.08

0.16

‐0.34

‐0.03

0.17

‐0.21

‐0.02

0.18

‐0.34

‐0.14

0.22

‐0.33

0.01

0.22

‐0.32

0.0 B o n d s

& R a

t e s

E U 3 m

L I B O R

0.28

‐0.05‐0.05

0.24

‐0.09‐0.09

0.17

‐0.22

0.09

0.08

‐0.3

‐0.08

0.2

‐0.18‐0.12

0.19

‐0.17

0.03

0.24

‐0.14

0.03

0.09

‐0.2

0.01

0.07

‐0.21

0.070.05

‐0.21

0.05

High

Low

Current3 Month log daily return correlation. High and lows over the past 12 monthsDifferent colours highlight the proximity to the extremes (dark red close to extreme)

14




Economic Calendar: 01 - 05 AugGMT Local Previous Forecast Consensus

Mon 01/08 07:30 09:30 Switzerland PMI Manufacturing : Jul 53.4 52.0 52.808:00 10:00 Eurozone PMI Manufacturing (Final) : Jul 50.4 (p) 50.4 50.409:00 11:00 Unemployment Rate : Jun 9.9% 9.9% 9.9%08:30 09:30 UK CIPS Manufacturing : Jul 51.3 50.0 51.0

Canada Public Holiday14:00 10:00 US Construction Spending m/m : Jun -0.6% -0.3% -0.1%14:00 10:00 ISM Manufacturing : Jul 55.3 54.5 55.2

Tue 02/08 01:30 11:30 Australia House Price Index q/q : Q2 -1.7% -1.0% n/a04:30 14:30 RBA Rate Announcement 09:00 11:00 Eurozone PPI m/m : Jun -0.2% 0.1% 0.1%09:00 11:00 PPI y/y : Jun 6.2% 6.0% 6.0%12:30 08:30 US Personal Income m/m : Jun 0.3% 0.1% 0.2%12:30 08:30 Personal Spending m/m : Jun 0.0% 0.0% 0.2%

Wed 03/08 01:30 11:30 Australia Trade Balance : Jun AUD2333mn AUD2000mn n/a01:30 11:30 Retail Sales m/m : Jun -0.6% 1.0% n/a01:30 11:30 Retail Sales y/y : Jun 2.2% 2.9% n/a08:00 10:00 Eurozone PMI Services (Final) : Jul 51.4 (p) 51.4 51.408:00 10:00 PMI Composite (Final) : Jul 50.8 (p) 50.8 n/a10:00 12:00 Retail Sales (sa) m/m : Jun -1.0% 0.5% 0.5%10:00 12:00 Retail Sales (ca) y/y : Jun -1.8% -1.3% -0.9%08:30 09:30 UK CIPS Services : Jul 53.9 53.1 53.511:30 07:30 US Challenger Layoffs : Jul12:15 08:15 ADP Labour Change : Jul 157k 100k 105k14:00 10:00 Factory Orders m/m : Jun 0.8% -1.0% -0.5%14:00 10:00 ISM Non-Manufacturing : Jul 53.3 52.5 54.014:30 10:30 EIA Oil Inventories

Thu 04/08 07:30 09:30 Neths CPI m/m : Jul -0.5% -0.1% n/a07:30 09:30 CPI y/y : Jul 2.3% 2.4% n/a08:00 10:00 Norway Unemployment Rate (sa) : May 3.4% 3.4% n/a10:00 12:00 Germany Factory Orders m/m : Jun 1.8% -2.5% -0.2%10:00 12:00 Factory Orders y/y : Jun 12.2% 5.1% 6.8%11:00 12:00 UK BoE Rate Announcement 11:45 13:45 Eurozone ECB Rate Announcement 12:30 14:30 ECB Press Conference 12:30 08:30 US Initial Claims 398k 415k n/a

Fri 05/08 Japan BoJ Rate Announcement Australia RBA Policy Statement

06:45 08:45 France Trade Balance : Jun EUR-7.4bn EUR-6.9bn EUR-6.1bn

07:00 09:00 Spain Industrial Production (wda) y/y : Jun 0.8% n/a07:15 09:15 Switzerland CPI m/m : Jul -0.2% -0.6% -0.6%07:15 09:15 CPI y/y : Jul 0.6% 0.7% 0.7%07:30 09:30 Neths Industrial Production m/m : Jun 0.3% -1.5% n/a07:30 09:30 Industrial Production y/y : Jun 2.6% 1.1% n/a08:00 10:00 Italy Industrial Production m/m : Jun -0.6% -0.2% n/a08:00 10:00 Industrial Production (wda) y/y : Jun 1.8% 1.2% n/a09:00 11:00 GDP (Prel) q/q : Q2 0.1% 0.2% n/a09:00 11:00 GDP (Prel) y/y : Q2 1.0% 0.7% n/a08:00 10:00 Norway Manufacturing Prod (sa) m/m : Jun 2.4% 1.0% n/a08:00 10:00 Manufacturing Prod (nsa) y/y : Jun 5.6% 2.0% n/a08:30 09:30 UK Input PPI (nsa) m/m : Jul 0.4% 0.6% 0.6%08:30 09:30 Output PPI (nsa) y/y : Jul 5.7% 5.8% 5.8%08:30 09:30 Output PPI (Ex-FDT, sa) y/y : Jul 3.2% 3.2% 3.2%10:00 12:00 Germany Industrial Production m/m : Jun 1.2% -0.5% 0.1%10:00 12:00 Industrial Production y/y : Jun 7.6% 7.8% 8.1%11:00 07:00 Canada Unemployment Rate : Jul 7.4% 7.5% 7.5%

15




GMT Local Previous Forecast Consensus11:00 07:00 Payroll Jobs y/y : Jul 28.4k 13.0k 20.0k12:30 08:30 US Non-Farm Payrolls (Chg) : Jul 18k 50k 100k12:30 08:30 Unemployment Rate : Jul 9.2% 9.3% 9.2%12:30 08:30 Average Hourly Earnings m/m : Jul 0.0% 0.1% 0.2%

19:00 15:00 Consumer Credit : Jun USD5.1bn USD5.0bn USD5.1bn

During 1-5 UK Halifax House Prices m/m : Jul 1.2% 0.0% 0.0%Week Halifax House Prices y/y : Jul -3.5% -2.8% -2.8%

Release dates and forecasts as at c.o.b. prior to the date of publication: See Daily Economic Spotlight for any revision Source: BNP Paribas

16




FX Forecasts*USD Bloc Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14EUR/USD 1.50 1.55 1.45 1.40 1.35 1.35 1.30 1.30 1.30 1.30 1.34USD/JPY 78 83 85 90 95 95 95 95 95 95 92USD/CHF 0.83 0.83 0.90 0.93 1.00 1.00 1.04 1.04 1.04 1.04 0.97GBP/USD 1.65 1.68 1.59 1.56 1.53 1.53 1.53 1.53 1.53 1.53 1.70USD/CAD 0.98 0.93 0.95 0.97 1.01 1.01 1.04 1.04 1.04 1.04 1.00AUD/USD 1.09 1.13 1.07 1.04 0.99 0.99 0.96 0.96 0.96 0.96 0.95NZD/USD 0.82 0.84 0.81 0.80 0.76 0.76 0.74 0.74 0.74 0.74 0.76USD/SEK 5.93 5.48 5.93 6.21 6.67 6.67 6.92 6.92 6.92 6.92 6.94USD/NOK 4.98 4.77 5.07 5.26 5.56 5.56 5.77 5.77 5.77 5.77 5.07

EUR Bloc Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14EUR/JPY 117 129 123 126 128 128 124 124 124 124 123EUR/GBP 0.91 0.92 0.91 0.90 0.88 0.88 0.85 0.85 0.85 0.85 0.79EUR/CHF 1.25 1.28 1.30 1.30 1.35 1.35 1.35 1.35 1.35 1.35 1.30EUR/SEK 8.90 8.50 8.60 8.70 9.00 9.00 9.00 9.00 9.00 9.00 9.30EUR/NOK 7.47 7.40 7.35 7.37 7.50 7.50 7.50 7.50 7.50 7.50 6.80EUR/DKK 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46

Central Europe Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14USD/PLN 2.60 2.48 2.69 2.75 2.81 2.78 2.85 2.77 2.85 2.85 2.65EUR/CZK 24.3 24.5 24.1 23.9 23.8 23.5 23.7 24.0 23.5 23.3 23.1EUR/HUF 275 275 269 265 265 260 260 255 260 260 250USD/ZAR 6.80 6.60 6.55 6.60 6.50 6.50 7.20 7.10 7.00 6.90 6.69USD/TRY 1.52 1.50 1.56 1.59 1.63 1.65 1.65 1.67 1.69 1.69 1.54EUR/RON 4.20 4.15 4.20 4.25 4.15 4.10 4.20 4.20 4.10 3.95 3.90USD/RUB 27.51 27.25 27.86 27.97 28.08 27.65 28.19 27.75 29.07 27.75 27.75EUR/PLN 3.90 3.85 3.90 3.85 3.80 3.75 3.70 3.60 3.70 3.70 3.55USD/UAH 7.8 7.8 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.3 7.4EUR/RSD 100 100 98 97 96 95 93 92 91 90 85

Asia Bloc Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14USD/SGD 1.20 1.19 1.18 1.17 1.16 1.15 1.14 1.13 1.13 1.13 -----USD/MYR 2.95 2.90 2.87 2.85 2.83 2.80 2.77 2.75 2.73 2.70 -----USD/IDR 8400 8300 8200 8100 8000 7900 7800 7700 7600 7500 -----USD/THB 29.50 29.30 29.00 28.70 28.50 28.30 28.00 27.70 27.50 27.50 -----USD/PHP 42.00 41.50 41.00 40.50 40.00 39.50 39.00 38.50 38.00 38.00 -----USD/HKD 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 -----USD/RMB 6.40 6.31 6.25 6.21 6.17 6.13 6.23 6.20 6.17 6.15 -----USD/TWD 28.00 27.50 27.00 26.70 26.50 26.00 26.00 26.00 26.00 26.00 -----USD/KRW 1040 1030 1020 1010 1000 990 980 970 960 950 -----USD/INR 44.00 43.50 43.00 42.50 42.00 41.50 41.00 41.00 41.00 41.00 -----

USD/VND 20500 20000 20000 20000 20000 20000 20000 20000 20000 20000 -----

LATAM Bloc Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14USD/ARS 4.18 4.25 4.34 4.43 4.51 4.60 4.69 4.78 4.86 4.95 -----USD/BRL 1.58 1.55 1.53 1.55 1.56 1.58 1.59 1.60 1.61 1.62 -----USD/CLP 450 435 425 430 435 440 442 445 447 450 -----USD/MXN 11.40 11.10 11.00 10.90 11.00 11.10 11.10 11.17 11.25 11.30 -----USD/COP 1730 1690 1690 1700 1710 1720 1725 1730 1740 1750 -----USD/VEF 4.29 4.29 4.29 4.29 4.29 4.29 8.80 8.80 8.80 8.80 -----USD/PEN 2.70 2.65 2.63 2.63 2.64 2.66 2.67 2.68 2.69 2.70 -----

Others Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14USD Index 72.30 70.76 74.87 77.62 80.72 80.72 82.99 82.99 82.99 82.99 79.73

*End Quarter

17



Friday, 29 July 2011

FX – Global Strategy Contacts

Foreign ExchangeRaymond Attrill Head of FX Strategy North America New York 1 212 841 2492 [email protected]

Steven Saywell Head of FX Strategy Europe London 44 20 7595 8487 [email protected] Hellawell Quantitative Strategist London 44 20 7595 8485 [email protected] Kowshik FX Strategist London 44 20 7595 1495 [email protected] Nicola FX Strategist New York 1 212 841 2492 [email protected] Markets FX & IR StrategyDrew Brick Head of FX & IR Strategy Asia Singapore 65 6210 3262 [email protected] Loo Thio FX & IR Asia Strategy Singapore 65 6210 3263 [email protected] Ryan FX & IR Asia Strategy Singapore 65 6210 3314 [email protected] Poh FX & IR Asia Strategy Singapore 65 6210 3418 [email protected] Qi FX & IR Asia Strategy Shanghai 86 21 2896 2876 [email protected] Pawlowski Head of FX & IR Strategy CEEMEA London 44 20 7595 8195 [email protected] Ahmad FX & IR CEEMEA Strategist London 44 20 7595 8620 [email protected] Donadio FX & IR Latam America Strategist Sao Paulo 55 11 3841 3421 [email protected]

Production and Distribution please contact:Roshan Kholil, Foreign Exchange, London. Tel: 44 20 7595 8486, Email: [email protected]

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29 july 2011 fx weekly dollar ambiguities amplified complete

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